Which of the following best defines a natural monopoly?
Choose 1 answer:
(A) a firm that produces the quantity where marginal cost equals marginal revenue
(B) a firm that has economies of scale over its entire range of demand
(C) a firm that is the sole owner of a key resource
(D) a firm that only sells natural resources
(E) a producer that minimizes average total cost instead of maximizing profit

Question

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Natural Monopoly: A natural monopoly occurs when a single firm can supply a good or service to an entire market at a lower cost than two or more firms. ‖ ‖ b ⋮ Economies of Scale: This is characterized by a situation where the average costs of production fall as the scale of production increases. ‖ ‖ c ⋮ Analyzing Options: Option B directly refers to economies of scale over the entire range of demand, which is a key feature of a natural monopoly. ‖ ∻Answer∻ ⚹ B ⚹ ∻Key Concept∻ ⚹ Natural Monopoly ⚹ ∻Explanation∻ ⚹ A natural monopoly is best defined as a firm that has economies of scale over its entire range of demand, which allows it to produce at a lower cost than any competitors. ⚹◊What factors contribute to the existence of natural monopolies in the market?⍭ Generate me a similar question◊

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